From the Wall Street Journal:
The White House and congressional leaders agreed on a deal to authorize the biggest banking rescue in U.S. history.
The $700 billion program would effectively nationalize an array of mortgages and securities backed by them — instruments whose deteriorating value has clogged the nation’s financial system.
Lawmakers finished writing the bill late Sunday, after which Speaker of the House Nancy Pelosi declared it “frozen,” meaning no changes would be made. The bill leaves many mechanics of the operation up to the Treasury. Among these are the crucial issues of how the U.S. government would decide which assets it will buy and how it would decide what to pay for them. The legislation leaves the Treasury 45 days to issue guidelines on those procedures. The bill awaits votes in Congress starting on Monday.
From big Wall Street houses to small community banks, executives have expressed an interest in signing up for the bailout. But some have said the extent of their involvement will depend on critical details.
The political fallout from the bailout could be substantial, given the enormous expenditure of taxpayer money. Some polls show wide opposition. But the legislation includes provisions designed to guard against ultimate losses for the government. And it calls on the Treasury, as an owner of mortgage securities, to “encourage the servicers of the underlying mortgages” to minimize foreclosures.
The deal came after tension-filled weekend negotiations, where the specter of a faltering economy collided with the politics of a presidential election to create one of the biggest congressional dramas of recent years. Saturday included a high-decibel exchange between Treasury Secretary Henry Paulson and congressional Democrats, a ban on handheld email devices to forestall news leaks, and a battery of lobbying calls from the president and the presidential candidates.
European governments stepped in to rescue Bradford & Bingley Plc, Fortis, and Hypo Real Estate Holding AG as tremors from the U.S. credit crisis reverberated around the world.
The U.K. Treasury seized Bradford & Bingley, Britain’s biggest lender to landlords, while governments in Belgium, the Netherlands and Luxembourg threw an 11.2 billion-euro ($16.3 billion) lifeline to Fortis. Germany guaranteed a loan to Hypo.
The interventions exposed how fallout from the crisis that drove Lehman Brothers Holdings Inc. into bankruptcy and prompted a $700 billion U.S. bank-rescue package has gone global. It also added urgency to negotiations among European policy makers as to how they deal with banking collapses.
“The precarious global environment means the weakest links in Europe are now falling,” said Mamoun Tazi, an analyst at MF Global Securities Ltd. in London. “If banks continue not to lend to each other we’ll see more failures.”
Tightening credit is casting a pall over the European economy with U.K. growth the weakest since the early 1990s and the 15-nation euro-area on the edge of its first recession. The risk is of a spiral in which the credit crisis and the economy begin to feed off each other, resulting in costlier borrowing and even weaker expansion.
“The extreme dislocations in European money markets are both a symptom and a source of serious stress in the financial sector, exacerbated by the rapidly deteriorating growth environment,” said Marco Annunziata, chief economist at Unicredit MIB in London.
To head off the collapse of its biggest bank, Belgium agreed to buy 49 percent of Fortis’s Belgian banking unit for 4.7 billion euros, while the Netherlands will pay 4 billion euros for a similar stake in the Dutch business, the governments said in a statement late yesterday. Luxembourg will provide a 2.5 billion-euro loan convertible into 49 percent of Fortis’s banking division in that country.